Stock can be broken down into two types: Common Stock and Preferred Stock. 

Common Stock is that which we normally think of when we think of stock.  It is the share of ownership with voting rights and a dividend as declared by the company's board of directors.  Common stocks are represented by the ticker symbols (i.e. the three or four letter combinations that scroll across the bottom of CNBC and other business television networks).

An investor may make money with stock in two ways.  One way is through a dividend payment.  A dividend is a share in the company's earnings above its expenses.  The board of directors of the company will declare a dividend payment that it thinks is fair to investors based on the company's earnings and any future plans (among many other factors).

An investor may also make money through capital appreciation.  This is the change in value of a stock.  If you buy a stock for $10 and later sell it for $15 then you have made $5 per share.  This value of the stock changes everyday on the open markets (like the New York Stock Exchange, NASDAQ, and others).  Some people buy and some sell, allowing the laws of supply and demand to change the price of the stock.

Preferred Stock is stock that actually behaves more like a bond.  While preferred stock is still a share in the ownership of a company, its other attributes differ from common stock.  The dividend paid by preferred stock is usually contractual and set at the time the stock is issued.  So investors know that by buying a share of preferred stock what dividend payment they can expect for the life of the investment.  The company, though, has more flexibility with this dividend than they would if it were a contractually binding interest payment on a bond.  The company's board can decide that they don't have the necessary money to pay the dividend at some point, but that skipped dividend payment usually rolls over to next time.  So the next time they want to declare a dividend the company has to pay both dividend payments to the preferred stockholders, and always before paying anything to common stockholders.

Most preferred stocks, also, have no voting rights.  They have more of a set payment, that is due to them before the common stockholders get anything, but give up voting rights in the company.

Since the dividend on preferred stocks is set when they are sold and never varies in amount, this is similar to a bond.  Bonds have a set coupon payment typically paid twice a year.  So if interest rates change in the market this affects what people will pay for a share of preferred stock with a set dividend.  The same way the value of a bond changes when market interest rates go up or down.

OTC Stock

What is OTC?  OTC stands for Over The Counter.   OTC stocks are those that are very lightly traded and are not listed on the major exchanges, such as the New York Stock Exchange (NYSE) or the American Stock Exchange (AMEX).  These issues trade through a dealer network known as the OTCBB (Over The Counter Bulletin Board) or the pink sheets, rather than the formalized exchanges.

Why would a stock trade this way?  Some companies do not meet the stringent listing requirements of the major exchanges which often only list companies over a certain size and whose stock trades a certain amount.  This allows smaller companies access to equity financing without having to meet the requirements.  For this reason investors must be wary of investing in companies that trade this way.  The reason for a company to trade OTC may be as benign as that they are a small company working their way up to formal listing.  Others, though, may list there because they have poor credit or have poor performance records.  This is not to say that all OTC stocks are bad investments, simply that extra attention may need to be paid to these issues.